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ISAs | 4th August 2018

Should you use an ISA to top up your pension?

Even though you’re far from retirement, the daunting feeling of worry about your financial well being has begun to creep it. You`ve started looking at your options, and the word ISA has popped up many a time as an idea to invest in. But there’s so many different types, each with their own unique selling points. How can you know which is for you? Fear not, that’s why we are here. We will talk you through your options so we can make the transition to retirement that one bit easier.

An individual saving account, better known as an ISA, is a tax-free way of saving or investing and one of the best ways to make sure you’ll have everything you need after retirement. Tax-free savings means that the interest you earn from the account isn’t subject to money grabbing government taxes. Even better, the money you earn from interest isn’t included in your annual savings allowance.

For the tax year starting on 6th April 2018, the ISA allowance is £20,000.

The limit of £20,000 is what it says on the tin: a limit. Most people save under this limit each year, but even the smallest of savings can add up in an ISA due to the high interest rates they provide. In fact, the Bank of England has just raised the base interest rate from 0.5% to 0.75%, so there may be no better time to invest in an ISA as interest rates are on the rise. This means even higher returns and faster saving.

When choosing how to save, you have several options. The best option for you depends on how fast you want to save, how much you want to save, and how much risk to your money you are willing to take. Then, you can choose between fixed rate or instant access, an important choice for those who may be tempted to splurge with their savings prematurely.

Cash ISAs are a great way to save, sometimes slowly but always surely. With these, there is very little risk to your money, but that means interest rates may not be as high as other, riskier ISAs. For example, a stocks and shares ISA will often provide you with much higher returns than a cash ISA, but the risk to your money is also significantly greater.

Then there’s innovative finance ISA which gives you greater control of who your investments go to than a stocks and shares ISA. But, similarly, it carries its own level of risk and should be careful to ensure you are making the right choice when investing.

How much can I actually save?

How much you can save varies depending on the terms of your ISA. Naturally, the younger you are when you start can lead to a bigger pension pot later on in life, but it’s never too late to get started. We recently broke down a Stocks and Shares ISA and showed you how with one example, by investing £25 per week, over a ten-year investment you could accumulate a £20,603 return. Take a look for yourself.

With so many options available it is important to ensure what you pick is best for you and your situation. Realising what you need and how to optimise an ISA for you and your future can be a stressful decision, but with the help of Apples for Oranges, you the decision is made easy. Take a look at our comparison tool today to get started.

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